Experts Look Ahead to Business Climate for Iran After Sanctions Are Lifted

“The best possible thing business can do is wait until the sanctions relief is finally in place,” said Richard Nephew, the former principal deputy coordinator for sanctions policy at the U.S. Department of State who is now a program director at SIPA’s Center on Global Energy Policy.

Since Iran and the group known as the P5+1—the United States and fellow members of the UN Security Council, joined by Germany—agreed last summer on a framework to put an end to the dispute over Iran’s nuclear program, and through passage of the agreement by the U.S. Congress in September, businesses have been eager to understand the next steps in trading with Iran.

The Joint Comprehensive Plan of Action (JCPOA) is scheduled for implementation on October 18, marking the removal of key sanctions and a likely increase in Iran’s crude oil production and exports. Nephew said the first quarter 2016 is when companies can really begin to do business with Iran.

“Ultimately, the Iran nuclear deal will go through,” Nephew said.

Nephew made his comments at a discussion of the outlook for Iran once the nuclear accord is implemented, hosted by the Center on Global Energy Policy and the New York Energy Forum on September 28.

Joining Nephew was Bijan Khajehpour, a leading expert on Iran's energy sector and a managing partner at Atieh International. The men shared their insights on the mechanism for sanctions removal and whether to expect a rebound in Iranian oil production in the near term considering technical, political and other market factors.

The discussion focused mostly on the impact the oil, gas, and petrochemical markets will experience when Iran will be able to export energy. By 2020 Iran will become the fifth-largest gas market in the world after the United States, the European Union, Russia, and China.

“The story of Iran is not about oil, it’s about gas,” said Khajehpour. “Iran will want to use gas domestically and preserve oil for exports.”

Currently, about 70 percent of Iran’s domestic energy consumption is based on gas and, with growing gas production and consumption, more crude oil will be freed for export.

As a newcomer to the current markets for oil, gas, and petrochemicals, Iran will have to create new trade connections.

“Iran will have to market itself to the world,” said Khajehpour.

He said Iran’s heavy oil is desirable to Asian importers. And, even though European countries had replaced Iranian oil with Russian oil when the sanctions were initially introduced following the 1979 Iranian Revolution, they are looking to trade with Iran again because of the current political climate with Russia.

“Iran is hesitant to export heavily in Europe because it does not want to become dependent on Europe,” said Khajehpour. “These are mistakes they made in the past, and they want to make sure to diversify their export routes.”

Both Nephew and Khajehpour predicted that there will be an incremental increase of oil in the market but it should not cause a shock. Even though the intensive sanctions regime of the past few years created tensions, it also gave Iran the opportunity to optimize the utilization of its resources and create domestic capacities.

“There won’t be any dramatic price impact or price collapse in oil market,” stated Khajehpour.

Though Iran plans to be a major producer of oil, gas, and petrochemical products by 2020, the challenge will be financing their production, and Iran will be looking for creative financial solutions. There is no doubt that foreign companies will play a significant part in this process, but they will have to wait for the lifting of the current sanctions, which could be removed if there is a comprehensive agreement in the current nuclear negotiations.

“We will be able to judge the business climate when we are looking at the implementation of the deal in Iran,” said Nephew. “Senior-level coordination and transparency will see us through.”

---Rebecca Krisel MIA ’16